One of the most-feared activist investors has locked horns with Twitter’s CEO
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The strain of holding two jobs is normally associated with low and middle-income earners who are struggling to make ends meet. Rarely does it have to do with a chief executive running two multibillion-dollar businesses.
Jack Dorsey (pictured above, right) has been CEO of two companies for the past five years —— he runs Twitter and Square, companies that he co-founded. While some investors have warned it could be an issue, it hadn’t caused much of a fuss until now. Enter Elliott Management, the most feared activist on Wall Street.
The $38bn hedge fund run by Paul Singer (above, left) has built a stake in Twitter worth more than $1bn, which amounts to about 4 per cent of the social media company. And Elliott wants Dorsey out.
The activist investor has also put forward four board nominees who will stand for election at the company’s annual shareholder meeting in May, even though only three seats are up for grabs.
It’s clear how Elliott feels about Dorsey, which is why the FT’s Hannah Murphy and Tim Bradshaw spent time with other investors and Twitter employees to get their views. Even with #WeBackJack trending on Twitter, it isn’t clear Elliott is on its own.
Employees have described the company as disorganised and paralysed by indecision and Dorsey’s plan to spend up to six months in Africa this year has left some investors wondering how he’ll run two companies from a perch a continent away.
As one shareholder told the FT, Dorsey may have been able to “keep the wolves at bay” if Twitter was outperforming its competitors, but it’s not. Compared to Facebook, one of its biggest rivals, the company has fallen behind.
Facebook’s valuation has doubled in the past four and half years whereas Twitter’s share price has increased by about 10 per cent over the same period. The gains are down to Facebook’s far better success with advertisers; Facebook has increased the revenue it generates from each of its daily active users by 72 per cent since the first quarter of 2017. That’s three times more than Twitter. And Facebook’s operating margin, at 34 per cent, dwarfs the 11 per cent margin at Twitter.
With the US presidential election and the Tokyo Olympics on the horizon, 2020 is bound to be a big year for Twitter. Whether Dorsey, who has worked to cement his legacy as quietly thoughtful and eccentric, will be able to enjoy the boost Twitter is expected to get from those events is an open question.
Tom Barrack and his polo club acquaintance
When an activist investment group turned its fire on Tom Barrack (illustrated below) last year, the real estate investor and ally of Donald Trump was quick to strike a compromise.
He quickly acceded to a demand that he appoint three new directors to his listed investment group Colony Capital, and started down the path of major asset disposals. Then, in July, he said he would quit as Colony’s chief executive in 2021, stepping down from a role he had assumed only a few months earlier.
Barrack even had a successor in mind: Marc Ganzi, who has a long record as an investor in mobile phone towers, and is also the proprietor of a polo club that Barrack sometimes frequents, about a 40-minute drive from his Colorado home.
But that choice seems to have inflamed Barrack’s row with activist investor Blackwells Capital and its managing director Jason Aintabi, as DD’s Mark Vandevelde reports.
Ganzi joined Colony as managing director last year, after selling Digital Bridge, an investment management company he co-founded, to Barrack’s firm for $325m.
In December, Ganzi announced that Colony would pay $185m for a 20 per cent stake in DataBank, a data centre operator in which he had previously made a personal investment. It was one of his first significant deals at the firm.
Ganzi exchanged DataBank “incentive units” for financial interests in Colony, which are subject to a lock-up. Colony’s board —— including three directors nominated by Blackwells —— gave their unanimous sign-off to the deal.
The acquisition of a leading data centre operator is actually one of the more prosaic investments of Barrack’s career, which has seen him buy everything from Michael Jackson’s Neverland mansion to Harvey Weinstein’s Miramax movie studio.
But an FT investigation last year uncovered data suggesting that investors lost about 3.7 cents of every dollar they invested in 18 funds that Colony raised between 1991 and 2015. (Colony disputed the data and the methodology.)
Now, despite an extensive process to mitigate any potential conflicts of interest in the DataBank deal, Aintabi is calling for “a moratorium” on related-party deals at Colony.
And, with the shares down about 70 per cent in three years, he wants “a comprehensive and independent investigation” into what he calls Colony’s “inexplicable loss of value”.
Elliott and Bank of East Asia call for a truce
Anyone following the fierce control battle between Elliott Management and Bank of East Asia must have been surprised to see a joint statement from the two parties this week announcing a cease fire.
Elliott has been trying for six years to wrangle control of BEA from the Li family that founded the bank in Hong Kong in 1918 (David Li is pictured below on the right). But time and again the US activist hedge fund has been thwarted by complex holding structures and friendly investment deals that have protected the family’s grasp on the company.
With a Hong Kong trial in early May set to decide if BEA secured strategic investments only to protect the Li family against the Elliott attack, many observers expected the situation to remain tense for months.
The joint announcement said that Elliott had applied to put the legal proceedings on hold and that the bank had hired Goldman Sachs to conduct a full strategic review of the bank’s assets.
The Li family can claim an early victory. Elliott has at least for the moment given up on its push for a sale of BEA.
The Goldman-run review has not started and it is unclear what conclusions it will draw. A person involved in the matter said that “everything is on the table”. Large parts of the business, such as the bank’s China business, could be put on the auction block, the person said. It could still leave Elliott with a win.